The Odds of Success for Legalized Gambling in Pro Sports

December 14, 2018

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In this debut episode of “The Boyleing Point,” EisnerAmper business advisor Jeff Boyle looks at the growing presence of legalized gambling in professional sports. Jeff discusses where it’s headed, the money and technology behind it, and how it plays into the fan experience.


Transcript

Dave Plaskow: Hello and welcome to The Boyleing Point. I'm your host, Dave Plaskow, and with us is Jeff Boyle, a senior business advisor in EisnerAmpers Audit Group. Jeff examines the everyday business and finance issues facing the sports, entertainment, and media sectors. Today we're discussing the business issues surrounding legalized sports gambling. Hello Jeff,
Jeff Boyle: Dave, great to be with you.

DP: So, Jeff, this is the maiden voyage of this podcast, The Boyleing Point, it's got your name on it. We are all really excited about this. I'm a sports guy. You're a sports guy. So I think there's a lot of really great topics to talk about is as we start this journey. So tell me a little bit about yourself.
JB: I've been with EisnerAmper for about 10 years now. I've been servicing sports media and entertainment clients. I'm an avid lover of sports, having played and watched them my whole life, which is pretty awesome. And to be able to now work in this field its helps me translate into an understanding of the business and seeing what goes on.
DP: What's your favorite sport?
JB: Basketball, no doubt.
DP: Favorite team,
JB: New York Knicks. Unfortunately,
DP: So let's get back to legalize sports gambling. It's pretty big right now in your world, is it not?
JB: Absolutely, yes.
DP: Put it into some context for our listeners. Who are the key players, the leagues, the states, the sponsors and so on? What are we talking about? How big of a pie as this?
JB: Currently it seems that the pie is quite large. I think the key participants are all of the above league, state sponsors, etc. What we've seen in the news recently has been more or less the leagues. They've been involved with MGM casinos to create these new sponsorship arrangements with the NHL, MLB and also the NBA. The NBA being the first to go through, and what they're doing is the leagues are providing MGM casinos with trademarks and data in exchange for a sponsorship fee. So, in essence, the sponsors have created this additional ad spending marketing to be able to get all this data and information in hopes of driving more traffic to their sites and also possibly to have more data out there to create an easier way for them to wager. The most interesting thing to me, though, is the teams, because the teams have created these sponsorship opportunities to create a better fan experience. Case in point is the New Jersey Devils. The most fascinating thing is in the Prudential Center, you now have this whole lounge area that they partnered with William Hill and where people can go to this area, have a beer, sit with people, talk about what's new in sports gambling. What are the wagers? Who is betting on what parlay? So it's really giving a better experience where now people are more engaged wanting to come into the arenas. And then, lastly, the states are where there's going to be an advantage, which is why once New Jersey cracks through, you're going to see an increase in gambling winnings, hopefully and then more taxable incomes on the individual which will be passed on to the states.
DP: Now a lot of this so far is uncharted waters. It's still very new. It's evolving. Where do you see it going in say five or 10 years?
JB: The biggest thing we'll see is a majority of the states will have legalized it. I think seeing how it's impacted New Jersey thus far, the opportunities it's given to businesses there. I think that every state is going to want to do that. And then I would think that, I mentioned before, you have the MLB, NHL and MBA all having a deal with casinos. I would imagine the NFL one day we'll also jumping into this pool, and all sports leagues will have a sponsorship arrangement. And then as far as the fan experience, when the MLB deal came down, Rob Manford really said that the biggest thing that the MLB needs to do is to get people through the doors. That fan experience is something that they need to build upon, which again would go towards the New Jersey Devils example. How are they going to create this broader fan experience? And speaking to any football fans out there, it's much better to watch football on tv. There's no doubt about it with the NFL red zone and stuff like that. But football fans still love going to football games. And the biggest attribute is tailgating, which is the favorable experience. So as we go through you're going to see leagues, teams and arenas really focused on the fan experience and use sports gambling as a method to increase the fan experience, to get people in the doors.
DP: You bring up a good point, Jeff, with potential income to states. Let's delve into taxes a little bit. Who gets taxed at what rate, how will the tax structure play out here?
JB: In the case of individuals that are gambling, winnings will be subject to the federal tax withholding and they would be able to deduct gambling losses up to their gambling income. For leagues and teams, it would really depend on their tax structure, as they could either be taxable at the individual owner level or the corporate tax return level.
DP: Let's turn a little bit to technology and data. I would imagine that the technology behind all of this should be substantial and, of course, there are areas dealing with the technology for gambling data security, and so forth. Tell us a little bit about that.
JB: I think the biggest attribute that MGM was looking at when they did these deals was getting this data from the leagues and to be a partner with them. So ensuring how they can analyze that data, that to me is going to be one of the bigger things. A way they might be able to do that would be blockchain that can help them analyze all this data, but also I think blockchain could have an impact on just providing betters with that security of knowing their bets are guaranteed under a secure and trusted platform. Blockchain could really help to guarantee these payments and have a safe, secure platform.
DP: Interesting. This is yet another podcast I've done where the word blockchain has come into play. So tell us, will legalize gambling impact the way people watch sports and, if so, how?
JB: I think every person in the world gets excited to watch the Super Bowl. Whether you're involved because you love sports, love watching football or you're just a casual fan and one of the things that people love to see is these prop bets, like what color of the Gatorade will be on the winning team. That is going to impact here, where the casual fan who likes gambling on sports would have point spreads and stuff like that. I think now you're going to see more of prop bets and get more people engaged and it could have a similar impact to the way that fantasy sports has. Fans have always had their favorite team, but fantasy sports has created a means for individuals to watch and follow more games at once. And fantasy sports gave TV products like the Red Zone a larger audience. You might love the New York Giants, but if you have one of the Dallas Cowboys on your team and they're playing each other, it really gives fantasy sports and sports gambling a tough thing. If you bet on the Cowboys against your team, the Giants, is it going to impact you? Legalized gambling has created new opportunities and jobs. Popular sports websites like Barstool Sports and The Bleacher Report have created their own shows to discuss sports gambling and provide insights into how to wager on games. I know this has become very popular with the younger age group. I would think that that's going to constantly grow. And one other thing would be just like the stock market, you're betting on your futures finances. If you're an avid sports fan, do you think maybe one day you could use your sports knowledge to turn your 401(K) into legalized sports gambling and invest your future in something that you feel more comfortable in by betting on sports instead of finances?
DP: You do make an interesting point that it does seem like for this to work long term, the Millennials are going to really need to buy into it.
JB: Absolutely. And I think that's why the Bar Stools and the Bleacher Reports of the world have become involved because they have the attention of the Millennials right now. They have a huge following where people love to go to their websites, listen to their podcasts and stuff like that. So I think them paving the way and trying to see what opportunities you can build I think is important.
DP: Now you had mentioned this to me the other day and I found it really interesting that this whole legalized gambling thing could actually play into the value and location of sports teams. Expand on that if you could.
JB: Especially in the NFL you see a lot of teams are relocating to different states. The biggest impact is going to be on the fan experience. So arenas and stadiums are going to want to bolster their fan experience toward sports gambling. And to do this, they have to be in a state where gambling is legal. This is going to be the easiest vehicle to increase attendance, which will increase their gate receipts. I could see them relocating to states where there is legalized gambling to be able to enter into these additional sponsorship arrangements like the MGM one, where in other states they wouldn't have the opportunity to do that. So you may have seen the news recently where the NHL just had their new franchise Seattle and I think it would have been interesting to see. There's already a team in New Jersey, but let's say if New Jersey didn't have a team, would this a year from now have created more incentive to want to put a team in New Jersey? I'm a New York resident. A lot of my friends have been using the popular apps like Fanduel and SportsBook and when they're in New Jersey a lot of them now we'll go from New York City on a Sunday to watch the sports games and they're going to go to Hoboken because they can go there to place these bets and have a more enjoyable experience. Like I said, if they're going to move to these places and they can have these additional revenue opportunities, it increases the value of these teams.
DP: So anything else we should keep our eyes on going into 2019 regarding legalized sports gambling?
JB: Keep your eyes on the NFL. I'm more or less very surprised that they didn't jump into this like the other big three sports leagues. I don't know why. Maybe they don't agree with it or maybe they're holding out to have all the other leagues enter in to see what their sponsorship arrangements are. The NFL being the biggest, maybe they're holding out to see how much more money they can get from these casinos because to me there's no reason why they wouldn't want to be involved in this.
DP: Well, Jeff, I enjoyed our chat and I really look forward to getting together and just chatting about the business of sports. So thank you for this valuable information.
JB: Thank you.
DP: Thank you for listening to The Boyleing Point as part of the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics. And join us next EisnerAmper podcast when we get down to business.

About Jeffrey Boyle

Jeffrey Boyle is a Senior Audit Manager, providing services for both private and public clients. He has particular expertise in the sports and entertainment industries, as well as emerging and established media and technology companies.

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